Rod, I think the reason the guy hasn’t been chucked out is that the UK would probably have to deport him back to Algeria, where his reception would almost certainly prove somewhat, er, unfriendly. This might be welcomed by some, but it would doubtless go against numerous international conventions for the Brits to send him to meet his fate there.
The welfare? I’m not sure, but I believe that the reason is that asylum seekers are not allowed to be employed, so there is no real alternative to providing some sort of state support.
The whole asylum situation in the UK is a complete mess, and its implications for the war on terrorism are tricky, to say the least.